Eighteen AGs investigating Morningstar's ESG policies, alleged anti-Israel bias

Morningstar Inc. and its subsidiary, Sustainalytics, are being investigated by 18 attorneys general for alleged consumer fraud or unfair trade practices.

Missouri Republican Attorney General Eric Schmitt announced he’s leading the inquiry into the company’s environmental, social and governance (ESG) investing ratings. Schmitt, who’s running against Democrat Trudy Busch Valentine for the seat of retiring Republican U.S. Senator Roy Blunt, announced on Wednesday he sent civil investigative demands in late July to Morningstar and Sustainalytics. It included more than 40 interrogatories for documents. Sustainalytics’ “Human Rights Radar” was highlighted as a concern along with documents relating to the investigation by the law firm White & Case and the Illinois Investment Policy Board.

“These ESG investing firms are playing politics with pensions and real people’s livelihoods,” Schmitt said in a statement announcing the investigation. “Missouri has been a leader in pushing back against woke ESG investing and our fight will continue.”

Schmitt requested Morningstar provide all documents and communications with clients attempting to dissuade them from doing business in and/or with Israel. Documents and communications also were requested between any manager and any person or entity relating to business conducted in, with or relating to the State of Israel, any Israeli/Palestinian conflict areas, and/or boycott, divestment and sanctions (BDS).

“Virginia’s consumer protection laws protect Virginians from companies who don’t like to play by the rules,” Virginia Attorney General Jason Miyares said in a statement. “Virginia has joined the investigation into Morningstar and Sustainalytics in response to credible allegations that they violated our consumer protection laws by allowing anti-Israel bias to infect the ESG ratings they provided to investors.”

In an open letter published in June, Morningstar Executive Chairman Joe Mansueto and Chief Executive Officer Kunal Kapoor reaffirmed its stance against an anti-Israel BDS campaign.

“However, in retrospect, our initial review was overly dismissive of the serious bias concerns raised by the organization JLens, the Illinois Investment Policy Board (IIPB), and other entities,” the letter stated. “We consider bias unacceptable in any form and concluded that the concerns warranted a thorough, independent review.”

Morningstar engaged White & Case, an independent law firm, to perform an investigation. More than 40 employees and external parties were interviewed and 140,000 Sustainalytics documents, client-facing reports and other materials were reviewed. The resulting 117-page report identified “limited areas of bias that are outliers over the span of our work but, nevertheless, do not live up to Morningstars’ standards.”

Three states aren't allowed to disclose participation due to confidentiality laws or other state policies. In addition to Missouri, the other 14 are Arkansas, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas, Utah and Virginia.